Loss-making sales and arrears tick up

According to the latest Pain & Gain report released by CoreLogic, the portion of home owners making short-term resales at a loss increased to 9.7 per cent in the June quarter, up from 2.7 per cent a year ago, despite Australian home resales increasing for the first time in a year.

Profit-making sales rose to 92.8 per cent during the quarter, up 40 bps from the March quarter and coinciding with a 2.8 per cent rise in national home values, however, CoreLogic head of research and report author Eliza Owen said a look into the performance of resales highlighted more pain for recent home buyers within a two-year period.

“Two years is a significant time period because we are two years on from the height of pandemic-related lockdowns, low interest rates, and have just passed the peak of transitions from low fixed rates to high variable rates,” Ms Owen said.

“The portion of homes sold within just two years increased by 1 percentage point to 8.5 per cent over the past year, however the portion of these short-term resales where the seller incurred a loss has increased more substantially, from just 2.7 per cent a year ago to 9.7 per cent in the June quarter.”

She added that this data suggests that there are currently more sellers willing to incur a loss, possibly due to high interest rates.

The profile of loss-making sales was “not too different” from overall resales in the quarter, according to Ms Owen, where the median loss was $30,000 compared to a median profit of $75,000 for nominal gains within the same two-year hold period.

“Houses made up 66 per cent of short-term, loss-making resales, and 63.3 per cent were in capital cities,” she said.

The report further revealed that owner-occupiers suffered the most short-term nominal losses at 72.1 per cent, compared to 27.9 per cent by investors, showing a similar split to the portion of overall resales in the June quarter.

Arrears on the rise

Preceding the release of CoreLogic’s report, data from Fitch Ratings (Fitch) suggested that the Reserve Bank of Australia’s (RBA) cash rate hikes increased the likelihood of mortgage arrears in 2023, which could be made worse by the high ratio of debt to disposable income and the dominance of floating-rate loans.

Borrowers who took out a mortgage between 2019 and 2021 when lenders tested serviceability with a 2.5 per cent buffer are more susceptible to deterioration in performance now that the buffer has increased to 3 per cent, according to Fitch.

The country’s 30-plus day mortgage arrears rose to 1.07 per cent quarter on quarter in 2Q23, increasing from the lowest levels in over two decades.

Fitch believes this increase may be indicating that borrowers are distressed due to rising interest rates and inflation, although delinquencies appear to be stabilising as early-stage arrears remain unchanged quarter on quarter despite this rise in 30-plus day arrears.

Investors selling in droves

These findings come as the annual Property Investor Sentiment Survey conducted in August 2023 by the Property Investment Professionals of Australia (PIPA) revealed a large number of investors in Australia are choosing to sell one or more of their properties over the past year.

From the responses collected from 1,724 property investors, the survey found that 12.1 per cent had sold at least one investment property in the past year.

Among the sellers, 24 per cent sold their properties to other investors (a drop from 33 per cent in 2022), 43.1 per cent were sold to existing home owners (up from 32.7 per cent), and 30.3 per cent were sold to first home buyers (up from 24.3 per cent).

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